Continent's major grocery chains are casting a keen eye onRepublic's profitable market. Ed Power reports

They call it "treasure island", implying untapped riches and the potential to reap profits with impunity. With mark-ups in the Republic ranking among Europe's highest, it is little wonder that the Continent's major grocery chains are casting an avaricious eye over a market regarded as ripe for exploitation. Tesco, Aldi and Lidl have already pitched their tents and others seem destined to follow. Industry watchers say it is a question of "when" rather than "if" another multinational seeks to establish a presence here.

It is in such light that we should assess Superquinn's announcement this week that it has struck a partnership with the upmarket UK multiple Waitrose.

Despite repeated, increasingly exasperated, insistences that it is not for sale at any price, the hard-pressed player (revenues slid marginally in the fourth quarter according to industry figures) is seen as highly vulnerable to a determined takeover bid.

As the Republic's labyrinthine planning regulations would doubtless frustrate newcomers attempting to build from scratch, acquisition is the only viable means of gaining a foothold.

More than one foreign Goliath is believed to have Superquinn in its sights. Can it resist a sustained wooing from a suitor bent on conquest?

Even if Superquinn remains in Irish hands, it is apparent that the grocery sector faces a period of unprecedented upheaval. The arrival in the late 1990s of Germany's Aldi and Lidl - two companies whose strategies are cloaked in Cold War levels of secrecy - has destabilised the existing hegemony and is destined to profoundly alter shopping habits.

Since planting roots here, Aldi and Lidl have inexorably - almost imperceptibly - insinuated themselves into the retailing landscape. There was a time when the appearance on the edge of town of a new Aldi or Lidl, with their garish livery and clunky shopfronts, merited a second glance.

Now, they are an unremarkable feature of provincial Ireland's topography, as ubiquitous as the corner shop or family-run butcher.

While it is impossible to read either's intent with great certainty - both are famously media shy - it seems they are prepared to sustain losses in the short term in order to gain market presence. Though their combined 2-3 per cent share of aggregate grocery sales may sound derisory, it is deemed impressive given their standing as relative newcomers.

"Thirty years ago, German consumers favoured premium quality goods. Aldi and Lidl changed that. They created an appetite for cheap, unfussy consumables," reports one industry insider.

"They didn't follow a trend, they created the trend; they changed the public's buying habits. It was a long-term strategy,which they seem determined to repeat here."

Some question the benefits that will accrue to the economy as Aldi and Lidl continue to expand.

Fine Gael TD Mr Phil Hogan notes that food imports from Germany have risen 2000 per cent in two years and wonders if the recent arrivals are working hard enough to stock indigenous produce where possible.

"We are not requesting that they or other retailers should source Irish products regardless of cost. At the very least, they should give Irish suppliers and producers a fair chance to quote for business. At present, many feel that they are not even getting a foot in the door in these new stores," he said recently.

Others are less circumspect: "It is hard to see how the economy benefits when a truck arrives from Germany, laden with German goods, is delivered by a German driver and then drives back to Germany," says one observer. "When Tesco bought out Quinnsworth it committed itself to stocking a certain amount of Irish produce within a set period. There is no indication that these guys are prepared to do likewise. They are not in the game of courting public opinion. They don't care about popularity. It's all about building a presence and keeping overheads low."

Rivals tend to feign indifference towards Aldi and Lidl - though rarely on the record. Officially, the established multiples welcome competition, hailing it as good news for the consumer and an impetus to tightly peg their own costs. Tesco, the sector's biggest player, is arguably best placed to rebuff the Germans. It has already upped the ante, expanding with minimum fuss into peripheral sectors such as forecourt and convenience retailing. Top brass are mindful of the inroads made by Musgrave group's late-night Centra brand over recent years and of the huge mark-ups offered by convenience goods.

Mr Gordon Fryett, Tesco's Irish operational chief, sounded a quietly determined note when he told The Irish Times that the company favoured a softly-softly approach; the gradual introduction of new services, unaccompanied by the lugubrious market campaigns usually inflicted upon the public in such circumstances.

When conversation turned to Aldi and Lidl, it was hard to avoid the conclusion that Tesco does not regard them as hugely threatening.

"We're keeping our eyes on Aldi and Lidl," said Mr Fryett. "It would be foolish of us not to. Ultimately, however, all we can do is focus on serving our own customers as best we can and leave our rivals to get on with their own thing."

Dunnes Stores has less cause for optimism. Again, it is difficult to accurately determine the chain's mood - representatives declined to discuss long-term plans. Commentators say Dunnes is vulnerable to outflanking by Aldi and Lidl. Pitched towards the lower end of the market, Dunnes faces intense competition from two companies whose obsession with cutting costs makes it own celebrated dedication to the bottom line seem positively slipshod.

"There is a famous story of a senior Aldi executive arriving at a new store in the midlands," recalls one insider. "He walked into the women's toilets and threw a fit when he saw that two sinks had been installed. He ordered that one be removed immediately - reasoning it would take twice as long for cleaning staff to scrub two sinks. If it was Superquinn, you would probably find 10 sinks and staff would receive medals for washing their hands - that's the basic difference between Aldi, Lidl and the others - a fierce determination to push costs down. You cannot overstate how driven they are."

The German threat to the status quo pales against that massing on the horizon however. Walmart, the world's largest corporation with daily sales frequently topping €1 billion and a workforce exceeding the combined Irish private sector, has already established a presence in Northern Ireland in the form of Asda. Industry figures believe a move south may be imminent. For all its denials, Superquinn is the most vulnerable takeover target, say experts.

"The trend in the retail business is that it becomes more and more competitive," says Mr Terence Cosgrave, editor of Checkout magazine

"The German chains are gaining more market share as consumers become increasingly price conscious. We are likely to see further changes in the near future."

Superquinn predictably claims it is concentrating on improving performance rather than fretting about rivals. Diversification need not sound the death knell for indigenous producers, insists marketing director Mr Eamonn Quinn. This week's Waitrose deal bolsters the group's presence in the convenience niche, underscoring its determination to stay in the game and ride out looming challenges, he says.

"There is going to be a spectrum of choice in the future - all the way from discounters to restaurants. It's about finding your rung on the ladder. We are looking to our customers rather than to our competitors. You have to keep evolving - but that doesn't mean changing our identity."

A defiant riposte to his detractors or gutsy last hurrah? Over the next 18 months, we are likely to have our answer.